Debt Avalanche: Your Comprehensive Guide

For the millions of Americans struggling with debt, finding a way to pay off big balances and end interest payments is essential to their financial well-being. One effective solution for clearing balances is the debt avalanche method. Consumers ready to manage their own repayments can use this option to eliminate high-interest debts and reset their finances.

This article explores the process of using debt avalanche to clear debts, compares avalanche to other debt relief options, and offers tips to maximize the effectiveness of this method.

What Is the Debt Avalanche Method?

Debt avalanche involves paying off a debt with the highest interest rate and continuing until all debts are eliminated. Consumers who choose this method typically want to save money by paying off debts with the most interest fees first, instead of looking at the total balance for each account. After clearing the debt with the biggest interest rate, consumers can apply the savings toward other debt repayments.

Experts named this method “avalanche” because as you pay off debts, repayments and savings become bigger, like a wave of snow careening down a hill. Ideally, by paying off accounts with high interest, you avoid the expense of compound interest. It’s also a good idea to look at the account’s Annual Percentage Rate (APR) to get an idea of how much you’d save each year by paying off the debt early.

What’s interesting to note about debt avalanche is that it doesn’t tackle debts based on their total amount, but rather by their interest. That means you could end up paying toward a smaller debt before a larger one if the interest payments are higher.

How Does Debt Avalanche Work?

Debt avalanche is an effective tool for consumers with long-term financial goals. This method works best when individuals follow through with debt payments over a period of at least 12-24 months.

The debt avalanche method involves the following steps:

1. Make a debt-relief budget: Determine how much of your monthly income you can put toward debt repayments. Calculate the amount you have left over after making essential payments for items like utilities, rent, and food.
2. Create a list of debts: Identify and list your debts by order of the highest interest payment to the lowest interest payment.
3. Prioritize payments on high-interest debt: Make the largest monthly payment on the debt with the highest interest rate and minimum payments on all other debts you owe.
4. Commit to monthly payments: Keep making payments on the debt with the highest interest rate until you pay it off.
5. Continue the cycle: Start paying off the debt with the next highest interest rate using the extra funds from your cleared debt.

Example of Debt Avalanche

Imagine a consumer named Natalia has three high-interest debts with $1,000 a month to put toward repayments. The first is a credit card at 19.99% interest, followed by a personal loan at 15.49%, and a car loan at 7.24%.

Natalia pays the minimum balance of $135 on her car loan and $65 on her personal loan, leaving her $800 a month to put toward the credit card balance. Including the interest payments, Natalia is likely to pay off this debt in about 17 months.

After clearing her credit card debt, she continues this payment structure with the personal loan. She can now put $865 toward the loan each month, which has a reduced balance after making minimum payments, clearing the balance in about 6 months.

Finally, Natalia can tackle the car loan using the full $1,000 a month from her budget. Since she’s made minimum payments for 23 months, she’s reduced her total to $20,895. She can likely pay off this last debt in less than two years.

Debt Avalanche vs. Debt Snowball

While similar in the practice of growing debt payments over time, avalanche and snowball have different goals. In the debt snowball method, consumers make more payments toward their smallest balances. Snowball aims to pay off debts as quickly as possible to build momentum and use the savings toward larger debts.

Using the avalanche method, consumers pay off debt based on interest rates, putting the most funds toward high-interest debt balances. After paying off the account with the highest interest rate, consumers move on to the next debt and aggressively pay the interest and the principal as before.

Both methods work best when you set goals and follow through each month. However, avalanche is favored by individuals who want to eliminate excessive interest payments first. The snowball method is popular among consumers eager to see progress and end debts as quickly as possible by starting small and working up to big balances.

Debt Avalanche vs. Other Debt Relief Methods

Here’s a look at how debt avalanche compares to other top debt relief methods:

Tips for Using Debt Avalanche

1. Set Up Automatic Payments

You may find it easier to make consistent debt avalanche payments if you set up auto-pay for each account. However, it’s important to update the amount each time you clear a debt, changing the minimum payment on the next high-interest balance to a larger sum.

2. Put More Money Toward Repayments

Funneling as much of your income as possible toward debt repayment means you’ll pay off high-interest debts faster. Identify ways to cut spending and save or find an additional source of income to fund your pursuit of financial freedom. 

3. Stay Motivated

Finding ways to stay motivated and pursue your financial goals matters nearly as much as your actual debt payments. Make avalanche an effective debt relief strategy by tracking progress, celebrating wins, and staying accountable through a family member, close friend, or financial advisor. 

Is Debt Avalanche Worth It?

Using the debt avalanche method takes time and a commitment to making consistent monthly payments toward your debts. By eliminating debts with the most interest first, you can potentially save hundreds or thousands of dollars. 

Debt avalanche isn’t necessarily a fast way to clear debts, and some may find debt snowball makes it easier to stay motivated by paying off balances faster. 

Another approach to debt relief is through an organization that handles debt settlement, consolidation, or management. In exchange for administrative account fees, you’re likely to pay off debts faster by leveraging professional accountability and expertise. 

Companies like TurboDebt offer debt relief programs tailored to your unique financial situation, offering a free consultation to start the process. 

TurboDebt is consistently identified as a trusted partner in debt relief by consumers across the United States. With over 17,000 positive reviews on Trustpilot and Google and accreditation from the Better Business Bureau, clients find freedom from debt in as little as 12 months. 

Find out today if you qualify for trusted debt relief and break the debt cycle for good!